MGM Clears Govt Hurdle for Cotai - Analyst Blog

By: Zacks.com

Posted: 1/10/2013 12:10:00 PM

Referenced Stocks: LVS;MGM;WYNN

MGM Resorts International
(
MGM
) has finally received a long-awaited approval from the Macau
Government for development of a resort and casino in Cotai, Macau
- the only Chinese city where gambling is legal.

Per the land concession contract, the company will construct a
five-star resort with gaming areas and 85% gross floor area of
non-gaming offerings including retail and other amenities on 17.8
acres of land in the Cotai area.

MGM Grand Paradise, a wholly-owned subsidiary of MGM China,
accepted the land concession contract on October 18 last year.
The total land premium payable for the build-up is $161.4
million, including a down payment and eight additional
semi-annual payments.

Additionally, MGM Grand Paradise will pay the Macau government a
rent of approximately $269,000 annually at the time of
development and around $681,000 annually once development is
complete. The annual rent is subject to review by the Macau
government every five years. The Cotai Land will be leased from
the Macau government for an initial term of 25 years with a right
to renew the contract for additional periods.

The company has already finalized a design for its proposed Cotai
resort with a completion time frame of approximately 3 years. The
property will have 1,600 rooms and suites, a gaming area
featuring up to 500 tables and 2,500 slots, food and beverage and
retail and entertainment options. The property is expected to
cost around $2.5 billion.

Although this much-awaited approval brought a sigh of relief to
MGM, the intense competition in the marketplace cannot be
overlooked. Macau is one of the largest gaming destinations in
the world and thus contributes immensely to earnings of the
domestic as well as western casino operators. One of MGM's peers,
Las Vegas Sands Corp.
(
LVS
) is already operating in that region.

In last September, another peer
Wynn Resorts Limited
(
WYNN
) got a nod from the Macau Government to set up a casino at Cotai
Land. Wynn targets to open Cotai Resorts in 2015.

Apart from these western players, Chinese players are also eager
to tap Cotai. One such company is SJM Holdings Ltd that won a
land grant in October last year to build its first hotel-casino
in the Cotai Strip. MGM currently carries a Zacks Rank #2 (Buy).
However, we remain Neutral on MGM Resorts over the long term.